Field Notes: Merging Grantmaking and Investing

Two recent articles in the Crain’s and Inside Philanthropy take a look at Heron’s strategy to invest all of its money toward mission.

This week's survey of the philanthropy & impact investing news found Heron looking into the mirror of two articles regarding our push toward putting 100% of our endowment into mission-related investments. Theresa Agovino sat down with Clara Miller to discuss the changing work of philanthropy for a piece featured in Crain's New York Business last week:

When Clara Miller took over the F.B. Heron Foundation, which focuses on fighting poverty, she was unhappy with what she saw. Not only were U.S. poverty rates stubbornly high, but income inequality also was on the rise. "If our mission was to raise people out of poverty, we weren't doing very well," said Ms. Miller, who became president of the Manhattan-based organization three years ago. "We needed to do more." So she took a rare, if almost unheard of, step in the foundation world—where typically only 5% of endowment principal is doled out to charity every year. Heron would move its entire $300 million endowment into investments that provide both social and financial returns. By the end of this year, 63% of Heron's funds will be invested in such vehicles. Ms. Miller hopes to be 100% invested in social-impact causes by 2017. That is a major departure from the typical foundation strategy of using the endowment solely to generate financial returns to fund grants to nonprofits. Heron is making the shift at a time when other foundations, as well as governments and corporations, are trying to find investments whose benefits extend beyond the financial. In the past year, the Pershing Square Foundation has used its $90 million endowment to make three social-impact investments, in addition to the grants it makes. This past summer, the Michigan-based Kresge Foundation announced it would pour $10 million into the Kingsbridge National Ice Center in the Bronx to help revitalize the surrounding neighborhood. And to facilitate similar efforts, Goldman Sachs Group Inc. started a social-impact investment fund that has attracted $150 million from clients to finance projects such as affordable-housing complexes and health care centers. Late last year, New York became the first state to introduce a "social-impact bond" for which investors are repaid based on whether certain targets are met. The state's first such project: working with a nonprofit to reduce prison recidivism rates. "There is a much larger market now in social and mission-related investments," said Brad Smith, president of the Foundation Center in New York. The movement stems from several factors. There is a general realization that government and nonprofits cannot solve all of society's problems. What's more, in a recent study, U.S. Trust found that half of high-net-worth individuals consider social and environmental impact an important part of their investment-making decisions—up from 45% last year. One-third of very wealthy investors have funneled money into such vehicles or are interested in them, including 66% of millennials. In contrast, only 27% of baby boomers felt the same way.

[A]lthough Heron technically operates within the legal and financial structure of a private foundation, it uniquely merged its “investment side” and its “grantmaking side” into a single Capital Deployment office. "Public foundations have a duty to employ all their assets for their mission," said Miller. So where are Heron's investments going? You can see the full list here and it makes for interesting reading. While a few investments have taken the form of capital grants, many have gone to private equity firms investing in ventures with some kind of social good. The purpose of one investment, to SJF Ventures, is described as "limited partnership interest in community development venture fund seeking job creation opportunities for low-wealth individuals and communities, and a growth equity fund focused on US companies in clean technology and tech-enhanced service sectors." Heron has also deployed a fair amount of capital to lending institutions. For example, it's invested funds in the Rural Community Assistance Corporation, which makes "loans to nonprofit housing development, rural water projects, as well as day care and health centers." Heron has put capital into other entities lending to low-income people starting businesses or buying homes. It's also put a lot of cash into nonprofit credit unions. A through-line in these investments is the hope that Heron money can help stimulate economic growth and create jobs, which Miller sees as a key to reducing poverty.

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Anthony Tagliente, Data Associate, Integrated Capitals

Anthony is a Data Associate on the Integrated Capitals team at Heron. Before joining Heron, Anthony was a research assistant intern at the Center for Global Prosperity, Hudson Institute. As a student, Anthony conducted an independent research project on yo...